EU’s Dombrovskis Sees ECB Rate Response to Inflation Shock

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(Bloomberg) — European Union economy chief Valdis Dombrovskis said the European Central Bank will need to address the continent’s rising inflation due to the war in Iran. 

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“It’s clear that the ECB will have to respond to the increase in inflation,” he told reporters in Nicosia, Cyprus as he arrived for a meeting of EU economic ministers, adding that the ECB remained independent to make its own decisions.

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Dombrovskis’ comments come a day after the European Commission, the EU’s executive arm, cut its growth and raised its inflation forecasts for 2026. 

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The commission forecasts showed that the euro area will slow markedly while suffering the fastest inflation since 2023 as it succumbs to the energy-cost surge from the Iran war. That jump in price pressures will likely lead to an ECB rate hike at the central bank’s June meeting, according to economists and markets. 

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Still, Dombrovskis highlighted the resilience of the EU’s economy and repeated calls for the region to move away from its dependency on fossil fuels. 

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Eurogroup chief Kyriakos Pierrakakis echoed Dombrovskis’ confidence in the bloc’s economy, but stressed that short-term policy measures are needed to help address rising prices.

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“We shouldn’t allow this energy crisis to metastasize,” he said. 

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Broadly, ministers agreed that government interventions should remain temporary, as leaders struggle to help consumers and businesses pay their energy bills.

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“It’s the worst economic situation we can get into,” said Lithuanian Finance Minister Kristupas Vaitiekunas. “We must choose between helping the economy to grow or helping the prices to be more stable.” 

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Italy and Spain are among member states pushing for more leeway on EU fiscal rules to allow additional government support.

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“The longer the conflict lasts, the more we will feel its impact, not only on prices but also on economic activity,” Spanish Economy Minister Carlos Cuerpo said. “I understand that the commission will remain flexible in light of the impacts we may see, in order to provide us with all the necessary tools and protect citizens.”

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Numerous officials argued that the situation highlighted the need for Europe to continue its push to decarbonize the economy.

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“Europe needs to become stronger, we need to become more independent from fossil fuels as soon as possible,” said Austrian Finance Minister Markus Marterbauer. 

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Cuerpo encouraged the EU to offer more fiscal backing for the green transition, arguing that “the rules need to be adjusted both in terms of European and national financing.” 

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—With assistance from Jana Randow.

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(Updates with additional details and quotes from ministers starting in paragraph three.)

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